UK SMEs remain optimistic despite ongoing cost of living squeeze

Half of firms expect revenues to rise in the year compared with just 9% who are braced for a drop in revenue

But coping with inflation and higher interest rates could mean price rises for customers and cutbacks in the business

SMEs are optimistic for the year ahead expecting revenues to rise although concerns remain about how to cope with inflation and higher interest rates, new research from the UK’s leading insurance premium finance company, Premium Credit, shows.

Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, found 50% of SMEs expect their revenues to increase over the next 12 months. That is five and a half times more than the 9% who expect revenues to fall.

Around 15% expect revenues to be broadly unchanged while 26% were unable to make a forecast. The results are broadly similar to last year’s index which found 49% predicting an increase in revenue while 11% predicted a drop in revenues. Around 14% expect revenues to stay the same and 26% were unable to make a prediction.

However, the ongoing cost of living crisis driven by higher interest rates and inflation is casting a cloud over business hopes for the year ahead. Nearly a quarter of firms (24%) say they will raise prices for customers while 15% aim to cut staff costs by not replacing people who leave and limiting pay rises.

Around 12% will put expansion plans on ice while 11% will cut investment in their business and the same number will consider more remote working for staff to keep office costs down. Just under one in 10 (9%) plan to cut back on office space and buildings.

The key reasons for firms being optimistic are their plans for new products and opening new markets. Around 36% said their optimism was driven by plans to expand into new markets while 34% will launch new products. The continuing recovery from COVID-19 is driving optimism for 25% of firms and a hopeful 19% expect interest rates to fall in the year ahead.

Among firms who expect revenues to drop the main reason for pessimism is rising energy bills cited by nearly half (46%) with 36% pointing to rising interest rates. Around 33% say the rising cost of materials will hit revenues and 28% say their client base has shrunk with firms going out of business.

Late payment of bills remains an issue – around 22% of SMEs questioned say the issue has worsened in the past year. That is slightly lower than the 24% who said the situation had worsened in the previous index last year. The number who said late payment issues had improved also improved slightly to 4% from 3% previously.

Adam Morghem (pictured) Premium Credit’s Strategy, Marketing & Communications Director said, “SME confidence remains high despite continuing economic challenges and the impact of higher inflation and interest rates. Managing cashflow remains a major issue however with many firms looking at potential cutbacks and price rises.

“Our existing support for vulnerable customers is tried and tested, and we are reviewing what additional support is appropriate during this time of uncertainty.”

Premium Credit is advising SMEs to consider premium finance which enables them to pay monthly for insurance cover instead of in a lump sum. Spreading payments for this everyday expense in such a way can help ease cash flow challenges and make paying for vital insurance simpler. Premium finance provides businesses with the ability to use a loan to pay for their insurance.

Authored by Premium Credit